With a price-to-sales (or “P/S”) ratio of 1.1x Network18 Media & Investments Limited (NSE:NETWORK18) may be sending bullish signals at the moment, given that almost half of all the Media companies in India have P/S ratios greater than 2x and even P/S higher than 6x are not unusual. Although, it’s not wise to just take the P/S at face value as there may be an explanation why it’s limited.
Check out our latest analysis for Network18 Media & Investments
How Network18 Media & Investments Has Been Performing
Network18 Media & Investments certainly has been doing a great job lately as it’s been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Network18 Media & Investments will be hoping that this isn’t the case, so that they can pick up the stock at a lower valuation.
We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Network18 Media & Investments’ earnings, revenue and cash flow.
Do Revenue Forecasts Match The Low P/S Ratio?
There’s an inherent assumption that a company should underperform the industry for P/S ratios like Network18 Media & Investments’ to be considered reasonable.
Retrospectively, the last year delivered an exceptional 37% gain to the company’s top line. The latest three year period has also seen an excellent 76% overall rise in revenue, aided by its short-term performance. Therefore, it’s fair to say the revenue growth recently has been superb for the company.
Comparing that to the industry, which is only predicted to deliver 12% growth in the next 12 months, the company’s momentum is stronger based on recent medium-term annualised revenue results.
With this in mind, we find it intriguing that Network18 Media & Investments’ P/S isn’t as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.
What We Can Learn From Network18 Media & Investments’ P/S?
We’d say the price-to-sales ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Network18 Media & Investments revealed its three-year revenue trends aren’t boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company’s future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
Having said that, be aware Network18 Media & Investments is showing 1 warning sign in our investment analysis, you should know about.
If strong companies turning a profit tickle your fancy, then you’ll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
Valuation is complex, but we’re helping make it simple.
Find out whether Network18 Media & Investments is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
